PREIT files pre-packaged Chapter 11 case with 95% creditor support

By Sarah Lizee

Olympia, Wash., Nov. 2 – Pennsylvania Real Estate Investment Trust filed Chapter 11 bankruptcy on Sunday in the U.S. Bankruptcy Court for the District of Delaware to implement a pre-packaged plan of reorganization that has the approval of 95% of voting lenders, according to a press release.

The company said in its disclosure statement that market headwinds and industry-wide changes, particularly in the retail sector, in large part due to the Covid-19 pandemic, have directly and negatively affected its liquidity.

“In addition to industry challenges, the debtors have contended with a leveraged capital structure, which has imposed onerous debt service expense on the enterprise,” the company said.

As of the petition date, the debtors’ corporate-level funded debt totaled roughly $935.5 million. The capital structure consists of $22.5 million under a prepetition bridge facility, and about $913 million under prepetition unsecured credit facilities, including $538 million under a prepetition revolver and term loan credit facility and $375 million under a prepetition seven-year term loan facility.

PREIT has filed a number of customary first-day motions with the court to support its operations during the court-supervised process, including the continued payment of employee wages and benefits without interruption.

The company is also seeking court approval to access the cash collateral of its bridge facility secured parties.

Support agreement

PREIT negotiated a restructuring support agreement on Oct. 7 for a consensual restructuring with its major creditor constituents, supported by holders of about 80.5% in principal amount of the unsecured credit facility claims and nearly 100% of the specified derivatives claims.

Under the plan, the reorganized debtors will enter into exit facilities consisting of a $150 million revolver with a $10 million letter-of-credit sub-facility, a $319 million second-lien term loan facility and a $600 million senior secured term loan facility.

The restructuring support agreement contains milestones, including securing an order confirming the plan no later than 30 days after the petition date, and having the effective date occur no later than 35 days after the petition date.

Plan terms

Under the plan, all stakeholders are expected to be unimpaired and all claims will be paid in full.

Specifically, holders of secured claims will receive payment in full in cash, the collateral securing their claims, or reinstatement of their claims.

The reorganized debtors will assume swap agreements with any obligations of the reorganized debtors so assumed secured pari passu with the postpetition senior secured facilities, provided that if a holder of an allowed specified derivatives claim is not a consenting lender, that holder may elect to exercise its contractual rights to liquidate, terminate or accelerate under the applicable swap agreement and receive, on account of any resulting payment amounts or termination values owed by the debtors, the principal amount of loans under the new second-lien term loan facility in an amount equal to the claim.

Holders of secured property-level debt claims will have their claims reinstated.

Holders of other priority claims will be paid in full in cash.

Holders of unsecured credit facility claims will receive on a dollar-for-dollar basis the principal amount of loans under the new second-lien term loan facility, provided that any holder that exercises the exit facility option will receive a payment in cash of their pro rata share of the exit commitment fee; plus first, on a dollar-for-dollar basis its pro rata share of the principal amount of loans under the new senior secured term loan facility; and second, on a dollar-for-dollar basis the principal amount of loans under the new second-lien term loan facility.

Holders of general unsecured claims and intercompany claims will have their claims reinstated.

Intercompany interests and existing equity interests will be retained.

Debt details

The company listed $500,000 to $1 million in assets and $1 billion to $10 billion in debt.

PREIT’s largest unsecured creditors are Wells Fargo Bank, NA based in Chicago, with a $668.45 million revolver/term loan credit agreement claim and a $244.54 million seven-year term loan agreement claim, and Service Management Systems, Inc. based in Nashville, with a $1.12 million trade claim.

The debtors are seeking a combined hearing on approval of the disclosure statement and confirmation of the plan on Nov. 24.

DLA Piper LLP (US) LLP and Wachtell, Lipton, Rosen & Katz are serving as legal counsel and PJT Partners LP is serving as financial adviser to PREIT.

PREIT is a Philadelphia-based real estate investment trust. The Chapter 11 case number is 20-12737.

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